Grime-X Is Studying the Profitability of a Change in Operation

question 88

Multiple Choice

Grime-X is studying the profitability of a change in operation and has gathered the following information: $\begin{array}{lrr}&\text { Current } & \text { Anticipated } \\&\text { Operation } & \text { Operation }\\\text { Fixed costs } & \$ 38,000 & \$ 48,000 \\\text { Selling price } & \$ 16 & \$ 22 \\\text { Variable cost } & \$ 10 & \$ 12 \\\text { Sales (units) } & 9,000 & 6,000\end{array}$ Should Grime-X make the change?

• A) Yes, the company will be better off by $6,000.
• B) No, because sales will drop by 3,000 units.
• C) No, because the company will be worse off by $4,000.
• D) No, because the company will be worse off by $22,000.
• E) It is impossible to judge because additional information is needed.

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Definitions:

Owners

Refers to individuals or entities that have legal ownership and control over a business or property.

Depreciable Asset

A tangible or intangible asset subject to depreciation, representing its loss in value over time due to usage or obsolescence.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset over its useful life, reducing its initial cost to its current book value.

Book Value

The value of an asset as recorded on a company's balance sheet, calculated as its cost minus accumulated depreciation.